Gas talk a lot of hot air

Last month, the Energy Information Administration announced that U.S. crude production will soon top oil imports for the first time in almost 20 years, and at the same time production of ethanol — which costs less than gasoline — has been increasing because of lower corn prices. That news was predictably followed by a drop in gasoline prices across the U.S. This is in marked contrast to predictions just a few weeks ago that an arcane trading market controlled by oil refiners and hedge funds would push gas prices to the stratosphere and wreck the economy. What’s going on?

The story here is simple. Opponents of renewable fuel, led by the oil industry, want to convince Capitol Hill that renewable identification numbers, or RINs, are the harbingers of doom for U.S. gas prices. Three facts every member of Congress should know about RINs: They are free, they are primarily traded by oil refiners to oil refiners, and they were created at the oil companies’ insistence. Early this year, the price of RINs rose dramatically, but since oil companies dominate the RINs market — and since ethanol supplies are increasing — we are hard-pressed to see a reason for that spike in prices.

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Many in Congress agree that the market fundamentals do not account for that increase in prices and have called for investigations — a move that we support. But before the witnesses swear in, let’s set the record straight on RINs and gas prices.

First, RINs are not raising America’s gas prices. A new analysis conducted by Informa Economics showed that RINs are most likely contributing no more than $0.004 (four-tenths of one cent) to the retail price of a gallon of gasoline. Meanwhile, Informa found that ethanol costs significantly less than gasoline at the wholesale level, providing an average discount at the pump of $0.044 per gallon discount so far this year. So ethanol is still making gasoline cheaper than it would be if we had 100 percent petroleum fuel.